Tesla'sGigafactory is going to be a huge deal. So huge, in fact, that Tesla's not going to announce where it will be located until later this year. You may remember that, just a month ago, Tesla CEO Elon Musksaid that, "The No. 1 thing is we want to minimize the risk timing for the Gigafactory to get up and running." Well, apparently getting the timing right doesn't mean rushing to get things done before they're ready.

The reason Tesla needs the Gigafactory, as you may remember, is to supply packs for the company's Gen 3 car, the EV that is supposed to cost $35,000 and be able to go over 200 miles on a charge. To get down to that price point, the batteries need to be cheaper, and Musk has said that the Gigafactory should reduce the per-kWh cost of a pack by "more than 30 percent." Speaking at the annual shareholder conference this week, Musk confirmed that planning for the battery plant is "quite advanced" and that Tesla is meeting daily with Panasonic, the other partner in the deal. Panasonic was originally unsure that those kinds of cost reductions could be achieved, Musk said, "but I think they are now convinced they can." In fact, he said 30 percent is "probably conservative at this point."

The Gigafactory should be up and running by the "late 2016 timeframe," Musk said, right around the time the Gen 3 car will be ready for volume production. While there will still only be one Tesla Gigafactory to begin with, Musk said that Tesla might start the process in two or three states (as opposed to just one or two, as hinted earlier). "We're probably going to do two or maybe three states all the way to creating a foundation and completing the plans and getting approvals and everything," he said. Sounds like someone wants to be ready to build gigafactories #2 and #3 in a hurry if need be.

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@nbsr - The cost savings on the batteries account for about 15% of the price. The rest comes from savings in economies of scale of the car itself (hence the growing gross profit) and the fact that it would be a series 3 size also save material costs. Making a mass market EV is the right way to go for Tesla. The other EV makers don't get cheaper batteries, their batteries are far more expensive than Tesla. You do realize Tesla is the #1 EV maker in usage of lithium ion cells right? They get higher economies of scale than all of the others.

30% cheaper battery pack = ~10% cheaper car. Important but not groundbreaking. You can save as much or more by ramping up mass production of EV specific parts (motor, drivetrain, inverter/charger, AC, power steering etc). That's what makes ICE cars cheap. I have a feeling that Tesla is using Gigafactory as a magic bullet for convincing investors they are ready for a mass-market EV. Not sure if that is a good idea. Premium market clearly works better for their business model and other EV makers will get cheaper batteries and accessories earlier. Some are already mass-producing EVs.

@nbsr Yes that is the other half of the equation. The sales for gen 3 will be an order of magnitude higher volume than model S. If musk can convince suppliers that the demand is there he will get lower prices for his EV components. And the demand is there. So he will convince them.

Agreed! And things will only get better as time goes on. Elon is playing his cards close to his chest. I don't blame him one bit. There are plenty of people who want to see him fall. Elon is innovative and has the capital to take a chance. I would reward him whenever possible. Thank you to Roadster and Model S owners for helping fund the 3rd gen and ultimately being part of the vision he and many before him shared but could never make "happen". All the best, Aaron Lephart www.smartcar451.com

If you take $400/kWh as the current "retail" price of a Tesla pack, then 30% off means $280/kWh. The guess is ~50kWh for the base model, so a $14k retail pack. Probably won't be a $35k MSRP for the base model (which leaves $21k for the rest, which may be a bit low), but somewhere ~$40k (with ~$26k to spend) seems completely possible. For comparison, 3 series starts at $33k ($30k invoice).

And BMW pays less for their parts (due to buying more) and don't have a $14K battery pack in the car. I think you have a poor idea of how much it costs to make a car. No only do you have to have room for markup, but you also have to assemble it, warranty it, etc. The current car is $75K with a 60kWh pack and a lot of subsidies from emissions credits. A 30% drop in pack price isn't going to cut it.

@Rotation - You have no clue what you are talking about, small format cells are cheaper than large format lion cells. This has NOTHING to do with what Musk says, it is the reality of the market, look here: http://www.teslamotorsclub.com/attachment.php?attachmentid=50130&d=1401033061 All my internal data also shows that 18650 is cheaper. Tesla uses NCA cathode over the standard LCO cathode and they use their own electrolyte. Asking for custom cathode and electrolyte is irrelevant in the cost advantage. Yes, it does require more material than large format cells but small format cells are more energy dense making up for it. You can't use NCA in large format cells. And that is why they chose 18650, they attempted to use large format cells but the energy density was not there, so they went with more energy dense small format cells. When assessing the base price of the Gen 3, the best way to go about it is using the base price of the 60kwh. Common sense.

@Rotation - Tesla has better economies of scale on batteries than BMW. Think about it for a second, each Tesla uses 3-4X more batteries than BMW i3. On top of that, Panasonic is a shareholder in Tesla so Tesla gets better rates on cells than anyone. On top of that Tesla makes their own batteries. And lastly, 18650 form factor cuts down costs as well. Also, Tesla sells the 60kwh for 70k, not 75k. Tesla also has a 25% gross profit margins, going for 30%. ZEV credits have been 0$ the last 2 quarters if you have seen so they are irrelevant.

@Rotation - BMW is using carbon fiber and other new materials in their cars, hardly something they can utilize their economies of scale on. On top of that, they have too much overhead and dealers to pay. The use of 18650 does cut down on prices. In the long run, large format is cheaper. But right now and any time this decade, 18650 has much better economies of scale and tooling. The Gen 3 car will use 18650. Average? We are talking about base price of the Model S vs base price of the Gen 3 no? And I hope your not serious about the other credits, the other credits don't even make 2%. Look at it this way, Tesla expects to make 28% gross profit by end of this year. When looking at a 70k 60kwh, that would mean 50.4k to make by end of the year (By the time they get to making the car in 2016/2017 their gross profit will be over 30%). Considering the Gen 3 will be 20% smaller at around 3 series size. Yes they can easily make it just fine with 30% discounted from the battery.

@NestT Yes, I'm aware Tesla makes a margin on the retail price of my hypothetical pack. However, I'm not about to guess at the actual cost, but rather assume that's the margin that they will depend on with this car. @Rotation "I think you have a poor idea of how much it costs to make a car." Are you responding to me, or to NestT? Anyways, the $14k "retail" price is supposed to include the margin Tesla makes too, so everything else can be at cost. The comparison to a 3 series sets a standard for feasibility (and its shows it's totally feasible). Tesla is targeting 500k annual volume once they include Gen 3. With that amount of volume, I don't see why parts cost won't be approaching BMW levels. The base version does not need much margin. Tesla is targeting 15%-20% for Gen 3 as a whole, so the base model probably is slightly above 10% (so about $3.5k-$4k in margin). The price of the Model S has almost nothing to do with what we will see with Gen 3, given the major differences in vehicle production volume, vehicle size, and likely features (I take it Tesla will de-content things a bit).

If you buy any car by constituent parts at retail it will cost 4X the retail price of the car as a whole. Tesla cost is probably closer ~$200 per kWh. After GF 50 kWh pack cost 7k. A BMW 3 Series glider is $21K. Total cost of 3rd Gen Sedan including motor /inverter /transmission $30k At $35k retail it leaves you ~14% margin for the base model. Right in line with Tesla projections. A 3rd Gen Sedan Performance Plus fully loaded at $65k will obviously have much higher margins.

JakeY: No, pack purchase price doesn't include margin. It's the price it's purchased for, not the marked up price it's sold to the customer for. A $7K 50kWh pack would be a lot more than a 30% drop. The comparison to a 3 series doesn't show it's totally feasible. It doesn't show anything. It's bad math. You can't get a 3 series glider for that. And even if you could, you don't have 14% margin because you still have to build the car. And on top of that a 3-series isn't large enough to carry a 50kWh pack and still have enough interior space to compete. 500K is a lot of volume, but BMW still has more buying power. Tesla will have to decontent a lot to get to the price you speak of. Weapon: I wasn't talking about just the pack price. The cost of the car is significant before you even talk about the pack price. I know Musk keeps saying it, but 18650 form factor does not cut down on price. They cost more than large-format packs in capacities. I don't expect you'll see 18650 cells in the Model E anyway. The average sale price for a 60kWh is not $70K. ZEV credits have been near $0 in the US. But there are other sources of credits. From Tesla's 10-Q: 'Other regulatory credit sales recognized during the three months ended March 31, 2014 were $11.6 million, compared to $17.1 million for the three months ended March 31, 2013.' That's across 6500 cars. Look at Tesla's average transaction price for their cars right now. Musk states it is over $100,000 per car. Plus a couple thousand in regulatory credits sales per unit. And you think with a reduction in price of the pack of 30% they're going to make money selling cars at $35K. Or even $40K. The figures don't work. Costs will have to come down a lot more. And with the pack being a huge part of them, that includes on the pack.

Weapon: No, 18650 doesn't cut down on costs. Again, I know Musk keeps telling you it, but it isn't true. 18650 is cheaper on the spot market because of competition, but Tesla can't buy cells on the spot market. And they don't even use the stock battery chemistry (we're told) either. So you're talking about all custom cells. Once you ask for all custom cells and ask for enough for 1,000,000 cars' worth over 5 years the advantage of being industry standard shape goes right out the window. Instead the most important thing becomes how much materials are used to make them. And getting the same pack capacity with 18650s requires more materials than with large format cells because you have all those additional casings and separators in there. And that's just the cells. Then we talk about how much more the pack costs due to it being larger and having to have more writing and sensors due to having more cells. 18650s don't make the pack cheaper. Tesla chose them because at the time they couldn't guarantee a significant minimum order from their supplier so they couldn't get a good deal on large format cells. But those days are past. We can talk base price to base price when talking about the ratio of prices. But when you're talking about backing out their current profit margins to costs, you have to go from current profit margins and current average transaction price, because Tesla doesn't give profit margin figures on their cheapest car. What do you mean the credits only account for 2%? Their gross margin on a $100K car is $20K. These credits are 10% of that, not 2%. You say "gross profit", you mean gross margin. And I still don't see any math in that paragraph that makes sense. You're backing out of the base model using figures of the average transaction price (and omitting the credits). Average revenue from a Model S: $100K + $2K in credits, for $102K. Gross margin is about 25%, that means the car is costing them $76K to make. The pack I'm going to estimate is about $25K cost to them (85kWh pack, $300/kWh), although that could be low too, really depends on how much it costs to build them a pack from cells.

@Rotation Again, you are mixing me up with NestT (and no, I'm not the same person as NestT if that is what you are implying). NestT's approach is completely different from mine! He assumes: $200/kWh, $7000 for 50kWh, $21k 3-series glider. $28k end cost. I assume: $400/kWh is current retail price Tesla is charging CONSUMERS for batteries. This is from the $10k price differential between 60kWh and 85kWh (ignoring for the moment you also get upgraded power, supercharging, and tires for 85kWh version, which would only lower the actual $/kWh price for the battery). It's pretty clear this price includes significant margin. 30% off this retail price is $280/kWh, $14k for 50kWh (again this includes margin). ~$40k for base price (I assume $35k refers to after tax credit as $50k did for Model S), which leaves ~$26k to pay for the rest in terms of cost. $30k invoice price for base 320i serves as a sanity check. In my model, the cost of assembly is included (I make absolutely no mention of glider costs, only NestT does), margin is included in the battery pack margin. Warranty costs would be part of company overhead (not part of gross margin calculation). And I want to point out that we are talking ONLY about base price. The average price is expect to be significantly higher (and will be the main driver of profit for Gen III).

Nothing Tesla ever does is completely as initially described, on schedule, or at the predicted cost. The question is whether it will be good enough. So far they've been doing OK. If they miss their target by a few thousand or a few percent, that might be fine.

The one thing about the Model X SUV that Tesla is working on that I am concerned about is the "falcon doors". That is a cool thing to have on a sports car. Not so sure if your typical SUV buyer is going to like them. People want their SUVs to look good but they mainly want them to be tough, high quality, durable and practical like a truck yet still have a lot of the look and feel of a car. People with SUVs will want to use them for hauling stuff every now and then you know. They are "kid haulers" too of course. I think the Model X ought to look a bit like the BMW X5 SUV.

The SUV market you are talking about are not interested in a Tesla. The SUV market where I live is the target market . . . a bunch of well-to-do moms that drive Lexus, BMW, Mercedes, and Cadillac SUVs to drive their kids to school and to soccer games. I'm often stuck in line behind them at the elementary school.

Nothing Musk said constitutes a delay. The original timetable on Tesla's site does not attempt to pinpoint "choosing final site." If the company breaks ground at several locations and chooses the winner by year's end, that leaves the entirety of next year for construction, exactly as shown in the original timetable.

You know..... this has got to be the most exciting "Shareholder's Meeting" Ever... even without Captain Sweatpants proclaiming his Genius to the CEO and pleading to be the Vice Chairman of Tesla and for a seat on the board of directors.

I've been convinced from the beginning that Elon was shooting for $150/kWh battery costs when they announced the factory idea. And everything seems to be pointing to exactly that happening. That's why I bought a bit more on the down swing. Even if the delay sounds bad there is very good news that THE most important partner is also convinced that the cost savings are going to be so enormous they supposedly want to be the only other partner. But from what I've read Panasonic are wanting the option to continue to invest in the factory every 6 months or bail. I'm not sure about the significance of that or if it is really true. But it sounds a little wishy-washy to me. Being the only other partner while simultaneously wanting the ability to drop out every 6 months, on a project as long-term as this, doesn't strike me as 'all in'. I'd cite sources if they were really that sound or important. It's a tiny part of the aggregate news on Tesla. As for the delay Tesla are known for letting folks know about delays better than the rest of the industry though some folks have had a bad time. Best to make sure everything is set up right now when the whole rest of the project can be tweaked easily and most efficiently. Plus it's easier to push the guys at the end harder, those up against the deadline get worked to death. But somehow Tesla gets their stuff done pretty well. Being 3 or even 10 months late on projects like Tesla has taken on are a normal part of the industry.

Anonymous

1 Year Ago

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I hope that this new battery company "Power Japan Plus" has sent some of their new "dual carbon batteries" to Panasonic and Tesla so they can torture test them as soon as possible. Based on what I have read, these new batteries look like they might be "the real deal" breakthrough that will be far superior to lithium ion batteries. Google this ... "Dual-Carbon Battery: Same Energy Density, Safer, Longer Life Than Lithium-Ion, Says Power Japan Plus"

Do you still believe in Santa too? Come on man. You read the company BS and then you read a reporter who read the same BS as you and wrote a story about it. You can Google anything. Does that make it all real?

What is it that convinced you that this particular "breakthrough" is the real deal compared to all the others? This isn't snark, it is an honest question. Musk addressed a question about them in the meeting. He said they do have great power density but the energy density is far lower than cells already in use.

Well, I am basing it on what is being reported by "Power Japan Plus" and what is in the "Green Car Reports" article. Google "Dual-Carbon Battery: Same Energy Density, Safer, Longer Life Than Lithium-Ion, Says Power Japan Plus". Here's an excerpt: "The new cell, known as the Ryden Dual-Carbon Battery, promises ENERGY DENSITY equal to today's lithium-ion cells, but less capacity loss over time and far greater safety." Watch the video for this article. If you need no thermal management for the batteries that is going to knock a good bit of cost off of electric cars like the Tesla and Chevy Volt, etc. Plus, it charges up TWENTY TIMES FASTER. That is a huge benefit. The batteries will easily last longer than the car itself. That will lower warranty costs that are priced into the car. You can probably sell your used dual carbon battery powered used electric car at end of life and get good money for it because you can still use these old batteries for things like energy storage for solar panels, battery backup, etc.

Elon's Answer: "Send me a sample Cell" Power Japan Plus likely cannot produce one that meets their claims of "ENERGY DENSITY equal to today's lithium-ion cells" ... as many have claimed the same, with nothing to show for it.

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